Hexagon Composites ASA

OSE:HEX

Earnings Call Transcript 2019-Q4

[Jon Erik Engeset, President & CEO]

Good morning, everybody. Welcome to Hexagon's Q4 Presentation 2019. I will start by giving some comments on the year that we have now closed and also some more strategic outlook. And then, David, as usual, will comment on the numbers, and the shorter-term outlook. So the backdrop remains a serious one. But the good news is that more and more people who care to take a look at the fact also acknowledge the dangers of global warming. And there is a lot of resources going into taking action, both politically and financially. So we just saw an update of the accumulated ESG assets under investment globally for 2018, which had gone up from USD 23 trillion in 2016 to USD 31 trillion in 2018. And I'm very confident that when we get the 2019 numbers, we will see a continued increase. There is a very interesting debate in Norwegian press currently about the discount rate and the risk-adjustment for ESG investment versus traditional investments. And I shall not take the risk of voicing an opinion. And I think it's interesting to look at the statement from the CEO of BlackRock. So I think also the risk dimension of investment is coming into consideration, both here in Norway and elsewhere in the next months and years to full extent. And we see also that insurers worldwide are starting to take a keen interest in the risk element of global warming. And now even Boris Johnson has gone green. So I don't think David voted for Brexit. So he's not a great fan. And -- but it's interesting that the U.K. actually has now taken a lead when it comes to firm commitments and accelerating the ban of petroleum cars from 2035. Previously, they have said 2040. And now they have advanced that. That's 15 years down the road, which may seem like a long time, but believe me, it is not. There is so much infrastructure, so much technology development and so much buildup of markets and structures that are required in order to reach that goal.Norway is at the very lead, aiming at banning petroleum cars by 2025. This is not the firm commitment yet. But on the other hand, already 42.4% on new sales of cars in Norway in 2019 were electric cars. And in addition to that, you have the hybrid cars. And while Norway is a small economy, and as such, I think the experience is, to some extent, limited or has limited relevance for the world at large. But I think it's very interesting to see how much can be done in a very short time if the right package of incentives and tax tools are applied. And there are also a number of other examples in Europe and globally. We haven't seen those firm commitments made in overseas countries yet, but you see a number of cities that are talking about banning petroleum cars in relatively near future. And some have indeed already imposed such restrictions, like, for example, Delhi.And it's not a coincidence that Europe is taking the lead because the EU has imposed a fairly detailed and severe set of rules and penalties coming into force in 2020 and in full effect from next year. So for passenger cars, the limit is 95 grams per CO2 kilometer -- sorry, 95 grams of CO2 per kilometer for passenger cars and 147 grams for commercial vehicles, typically delivery vans. And there is a penalty of EUR 95 for every gram exceeding that for the sales from an OEM in a given year. And this is adding up to serious moneys for the OEMs and is a main driver for the shift to clean technology in Europe. And new targets are already set from 2025 where the limits are going down to 81 grams for passenger cars and 125 grams for light commercial vehicles. And there are also regulations in place for heavy-duty vehicles. Actually, we discovered that there were some inconsistencies on EU's home page. So we have to clarify the penalties that will be imposed, but also very strict penalties will be imposed on the suppliers of heavy-duty vehicles unless they manage to change technology in the cleaner direction. So this means for the short and medium terms that there are strong drivers for g-mobility, gas technologies and CNG and renewable natural gas, RNG, and EU -- it's important to remind everybody that EU is a strong supporter of CNG as a medium-term measure. And there are subsidies and tax reliefs in place. The key markets as of yet are Italy, Germany, Sweden, Spain and Benelux. And Spain is among the markets that are now investing heavily in infrastructure. And unlike on the battery electric side and on the hydrogen electric side, the infrastructure is in place in Europe with more than 3,600 filling stations, and there has been a growth in filling stations. And there is a program to accelerate that growth to reach 10,000 filling stations across Europe by 2030. So the debate, especially in Norway is very much focused on electric vehicles. But if you look at the measures taken in the EU, in particular, then you will see that natural gas and renewable natural gas, biogas, are indeed among the mix of measures that they advise. So I will ask you to jump to Page 10, and then I'll go back to Page 9. So there was a report issued recently by the Hydrogen Council. It was McKinsey who had supported them with developing the report, looking at the prospects of hydrogen. And they had a very positive outlook, eyeing cost competitiveness of hydrogen for certain segments by 2030. And regarding transportation, in particular, they pointed out the heavy-duty trucks and buses and also certain maritime applications. Those are the 2 main target segments that we have also talked about many times in this room. So as such, it was a very comforting confirmation of Hexagon strategy. They further estimate that approximately USD 70 billion of investments will be required over the next 10 years in order to realize the hydrogen opportunity, which, on the one hand, is a high number but, on the other hand, is less than 5% of the annual energy spend. So as such, it appears quite manageable. And Hexagon, as you know, have already committed relative to our size, quite significant funds into developing our own hydrogen technology capability and infrastructure. So we have now combined those activities in Hexagon Purus with 4 engineering centers and 4 production sites. But maybe more importantly, we have significantly expanded our engineering and project management capabilities by doubling the organization over the last couple of years. You've seen that hitting our numbers every quarter. It will continue for some time. But we are more confident than ever that this is a good way of investing our resources because if -- or going back 2 years, I said the jury was still out there, is it going to be hydrogen electric, is it going to be battery electric, is it going to be hybrid electric. Today, there is no doubt in our mind that hydrogen will have an important role. And I think it is becoming clear that especially for the heavy-duty and medium-duty applications, it is a very natural choice to develop. We are also investing in capacity expansion, especially at our Kassel site. And we have currently more than 50 ongoing development projects with customers in order to prepare for this future. So we and the rest of the industry are getting ready to ride the wave. As a matter of fact, we have some capacity constraints already today, especially in our Agility structure. So we increased capacity at Raufoss in Norway for the g-production last year. This year, we have increased our CNG light-duty capacities in Kassel, and we are about to commission a new line in Lincoln, which will add approximately 25% capacity to the Lincoln operation. And we have also decided and are in preparation to add heavy-duty capacity in Kassel, Germany. Today, we are importing cylinders from the U.S., from Lincoln, to Europe to supply to the bus market, while we are now preparing to transfer that production to our European site to improve the logistics and economics but also in order to have sufficient capacity to meet the growth that we see coming our way. If we then take a look at 2019 and such, we had a very healthy 19% top line growth organically. And that's despite the fact that some of the segments actually experienced a decline. So we are very pleased with the overall development in 2019 and especially in Q4. I think Q4 demonstrated what happens to our bottom line when we are able to reach scale and utilize our capacities. I think it's -- you should assume that there are still some bumps in the road that we will work on leveling out. And David will touch a bit more on that, especially now for first half. But I think we are approaching a stage towards the end of this year where we will be in a situation where we will fully utilize our capacities. And that will drop down to our bottom line. We are particularly pleased with the performance of Agility. We acquired control of Agility at the beginning of this -- or sorry, at the beginning of 2019. So 2019 was the first full year of Hexagon ownership. And the Agility team has really done great. It's a very strong team and very forward-leaning, market-oriented. And they achieved 31% growth organically from 2018 to 2019 on the structure, which now remains in Agility. And the EBITDA improvement was overproportional, so again, demonstrating the scale effect, even though there are some inefficiencies in the phase we are in because we are also spending a lot of resource on ramping up new capacity and getting ready for the long-term growth. But very pleased with Agility's performance in 2019. Another smaller but still very significant acquisition we made in Q4 2018 was Digital Wave. So that was a very serious step into digitizing our offering. We have the Modal Acoustic Emission technology, which is a very cost-effective way of recertifying tanks and which we will invest also into developing for other applications than Mobile Pipeline, which we use it for at present. So again, a very healthy top line growth and extremely satisfactory EBITDA improvement. So this year, it has -- it is 20 years since Hexagon was incepted. And it's maybe an occasion to look back at the development, which has not been linear, but over the years, the company has grown. And then you will remember that in 2016, we demerged our U.S. automotive operations. We merged together with Agility. So we owned 50% of Agility from 2016 up until the beginning of this year. And then we acquired the remaining 50%, which was a step change for Hexagon as from 2019. So I suppose, in 10 years from now, looking back, we will also see some of these waves. But I think we will all be mighty disappointed if we would not -- if we will not see very, very strong growth also going forward but with probably some challenges to solve on the way. So on that note, I will invite David to the floor, and then I'll come back for some questions at the end.

[David Bandele, Chief Financial Officer]

Thank you, Jon Erik. Hello, everybody, everybody joining us also on the web stream. Let's take a look at the fourth quarter 2019 financials. First of all, the highlights. So as Jon Erik pointed to, record revenue and EBITDA in Agility Fuel Solutions, year-over-year growth basically across all the automotive applications there, so capping off a very strong year for Agility in 2019. Also strong for CNG Light-Duty Vehicle volumes on e-mobility. So there you can see fuel cell electric, battery electric offerings, continues to be a very dynamic market. On the one hand, we reported 2 or 3 weeks ago, a cancellation of a light-duty fuel cell contract after the quarter. And on the other hand, as Jon Erik pointed to, we have more than 50 ongoing active development projects in that space. Mobile Pipeline, I would say, decent volumes there. And again, satisfactory contributions from Digital Wave and MasterWorks in Q4 as well as for the full year. For Ragasco LPG, solid quarter. We went into that quarter a little bit unsure. There may be some postponements and delays. But Q4 was pretty strong. And in terms of seasonal, Q4 tends to be a low quarter seasonally. It's been a strong finish to the year for Ragasco. So what does that mean in the numbers? To the left, we look at revenues. We posted NOK 942 million in revenue. That's versus NOK 426.8 million same quarter last year. Of course, this is the first year that we consolidated Agility fully. Agility's contribution was NOK 540 million for the quarter. Over to the middle for EBITDA. We posted NOK 99.1 million EBITDA for 11% group margin. And that compares versus the NOK 55.2 million we did in quarter 4 '18. In that quarter, we saw the last of the reversals for the earn-out clause that was in the xperion transaction in 2018 that was for -- had a positive impact in '18 numbers of NOK 18.4 million. When we adjust for that, you can see in the blue bar in the middle, the comparable figure would be NOK 36.8 million or 9% margin. So versus adjusted EBITDA for quarter 4 '18, that's a NOK 62 million increase. Agility contributed NOK 74 million of that increase. Weighing on the results are continued efforts ramping up the hydrogen opportunity. That was heavy in this quarter, minus NOK 37 million for Q4 '19. The same effect, Q4 '18 was minus NOK 14 million. And a lot of the difference there was commercial revenues. We had quite a lot of commercial revenues in Q4 '18. This quarter of '19 was heavily development revenues. If we go to net profit on the right, we posted NOK 11.4 million net profit versus unadjusted Q4 '18 of NOK 23.2 million. Of course, coming down from EBITDA to net profit, we have to then include the depreciation and the intangible amortization from the Agility transaction. And also remembering that Agility used to be reported below the line, equity accounted in one line, of course, now it's fully consolidated in '19. Those total effects are around about negative NOK 42 million year-over-year. Year-over-year also in terms of our interest costs are minus NOK 17 million, that's mainly the cost of the bond we raised to do the Agility transaction. And of course, we have tax positive impacts of NOK 25 million year-over-year. And foreign currency year-over-year was negative NOK 22 million impacting these quarters. We also like to give the view. If you look to the right of the group normalized, i.e., taking out the hydrogen results. And you can see that the rest of the group outside hydrogen posted a very healthy 15% EBITDA margin, which is target margin for Hexagon. So a very strong quarter. Looking at the 2 pies. Pie on the left is the quarter 4 2018, pie on the right quarter 4 2019. On the left, we also include pro forma Agility and Digital Wave numbers, so they're like-for-like. And again, you see in Q4 '18, Agility had a very strong quarter itself, posting NOK 420 million, but that's been dwarfed by this performance in quarter 4 '19 of NOK 540 million. For Purus, we posted NOK 123 million in sales, primarily light-duty, CNG Light-duty Vehicle sales there. And the corresponding NOK 90 million in quarter 4 '18 was approximately NOK 55 million for light-duty and NOK 35 million revenues for hydrogen. There was a real barnstormer quarter for Mobile Pipeline last year. You can see the NOK 241 million last year in orange. Again, a decent quarter this year of NOK 153 million, but obviously, a shortfall versus the very heated quarter last time or last year. And Ragasco, even though that had a very strong 2018 as a full year, seasonally, quarter 4 was quite low. You can see the NOK 117 million in blue last year. And again, NOK 141 million revenues capping off 2019, a very solid quarter for Ragasco.Having a look at Agility itself. Chart on the top right, we talked about the revenue increase. That's NOK 120 million revenue increase year-over-year. And on the EBITDA side then, they posted NOK 74 million EBITDA versus the NOK 44 million last year. And that's an increase of NOK 29 million and a 14% very healthy margin from Agility there. That margin, primarily driven by volume. In the quarter, as I said, the year-over-year growth, that was in the North American medium- and heavy-duty truck areas, also, European and North American transit bus year-over-year, but also EV. So EV truck had a considerable growth year-over-year, and we'll cover that a little bit later. We -- as we expected, we had lower Refuse Truck volumes. Orders in '19 were very much skewed to the first half. So that has continued to be low at the end of the year as we predicted. But Agility LTM EBITDA of NOK 202 million against CapEx spend for the year of NOK 52 million, a very strongly cash-generative business. And on the bottom right-hand chart, you can see the 31% then year-over-year growth for the first year of full ownership. Looking at the cash for the quarter. Had very good operational cash inflows of NOK 93 million when we strip out operating working capital. Looking at operating working capital on its own was positive which is good news. We had quite a heavy negative operating working capital in Q3, and we managed to unwind a lot of the buildup of the inventories we had from Q3. CapEx was quite a heavy quarter, heaviest quarter for the year of NOK 64 million. That's ongoing capacity expansion. Jon Erik touched in Lincoln and also productivity and other projects in Ragasco primarily. On the product development, again, we continued to develop products within the Purus area primarily. And net movements in other financing is mainly the debt servicing of the bond. And looking at our balance sheet then, we closed with, again, a healthy 46% equity ratio. And the net interest-bearing debt was just a touch under NOK 1.1 billion, strong, stable balance sheet. So this quarter, we will shine the spotlight on the European transit bus area. This is a very, you can say, old business for Hexagon. We started this business way back in the early 2000s. So we're very familiar with it. It is and has been historically very cyclical in nature. Very good to see that with the EU clean air regulations, we see this real push for g-mobility. So we say it's a real g-mobility growth story. We've seen that in the light-duty vehicles, of course, but also in the transit bus, as these clean air regulations are really driving then this demand, and we see this as a very good and hopefully, continuing trend. And also, when you couple that with the favorable total cost of ownership for the fleets in municipalities, this has definitely been an upward trend for us. So much so that over 1/3 of total transit bus revenues are now from Europe, and this means this also accounts for 12% of total Agility revenues in this sector, you can say. The volume increases would justify further investment into European footprint. And the good news is with our European footprint that we have, we can definitely benefit from some of efficiencies there. So producing in U.S., we can produce in Europe and other places as well. Customary to touch preliminary and unaudited full year 2019. I stress that these are preliminary and unaudited, of course. For the full year then we posted revenues of NOK 3.4 billion versus NOK 1.486 billion in 2018. Of course, Agility coming in added NOK 1.84 billion to our revenue. Otherwise, strong CNG Light-Duty Vehicles helped to offset some reductions in Mobile Pipeline and the LPG area. For EBITDA, we posted NOK 360.7 million for the full year 2019 for 11% group margin. To the left of that, we adjust for the total accounting effects for Agility. So there was a gain on the transaction. And there were also related charges that went through the EBITDA line. So the net of those is about NOK 44 million. When we adjust for that, we get NOK 316.5 million for a 9% margin. On the left of the EBITDA, the dark bar, the NOK 234.5 million is what we posted last year, but that included this earn-out reversal. That was for NOK 108.4 million. So we adjust for that, and the adjusted '18 number is NOK 126 million. So comparable difference between the NOK 126 million and NOK 316 million is an increase of NOK 190 million in EBITDA for the year, Agility contributing NOK 202 million of that. Total investment effect into hydrogen for the full year. You can see there is a negative NOK 108 million. So results stated after that impact.Net profit. Very pleased to post a net profit of NOK 108 million, even though it's down on an adjusted basis versus last year, and of course, FX has played a role in that, but also, this is after bearing increased interest costs, as I said, from the bond loan for the full year. And the margin then for the full year, ex hydrogen, is 14% for the group. So again, healthy and almost on target. And if I conclude then with my typical scorecard for the year, full year 2019. Again, to stress, 14% EBITDA margin when we correct for the investments in hydrogen; EBITDA of NOK 202 million from Agility, 31% revenue growth; 141% revenue growth in CNG Light-Duty, and that's tied to Volkswagen's g-mobility focus; NOK 108 million net profit; 46% equity ratio; and before expansion in operating working capital, we generated cash of NOK 307 million for the business. So we close 2019 and look forward to 2020. Jon Erik has touched on this and in previous quarters that we are reorganizing the business. We want to be a lot sharper, so that you can see our 2 main axes of offerings, one being the e-mobility. This is really the transformational game changer for Hexagon, more of a future play medium to long term. And obviously, our g-mobility, you can say this is more our core business roots in automotive and also transport and distribution. And this is more in the compressed natural gas. There's also LPG offerings there. So the e-mobility on the top, very much a 0-emission play, bedrock and hydrogen fuel cell and also battery electric and a combination of the 2; and g-mobility, low-emission, sometimes negative emissions when it comes to renewable natural gas. The unique thing about Hexagon is when we approach a customer, particularly in the heavy-duty, medium-duty space, we are unique in that we can offer basically solutions for all the alternative fuels. So whether it's battery electric, fuel cell, propane, compressed natural gas, hybrid of many of these, that's a very unique offering. It gives us a very unique position in the market. And I think that was proven with our LTA renewal with UPS and big fleets and customers like that. So we're agnostic to our alternative fuel. The other key thing then on the e-mobility side, if you look at the -- if we restated -- again, this is just preliminary. If we restated the 2019 results, you can see still a healthy revenue of NOK 617 million. But the results are negative as we invest so heavily into the hydrogen space in the future. So it'll have a negative EBITDA profile. And when we look at the g-mobility, our core business, this is strongly cash generative, around about a NOK 3 billion business here and NOK 343 million of EBITDA. So the bottom generates the cash. The top is needing the cash for the future generation of cash. Subtle changes will happen. We'll go into details when we report in quarter 1 2020. But you will see here that Purus hydrogen is as is today. In addition, we will add the battery electric and certain heavy-duty hydrogen system competence from Agility up into here. MasterWorks, which used to be reported in Mobile Pipeline will come in here. MasterWorks will be slightly refocused to be an internal supplier for hydrogen, will be able to do short series, low volume, very niche runs on hydrogen as well as servicing some of its external customers. Otherwise, light-duty vehicles remains the same. Okay. Let's touch the outlook, starting with Agility Fuel Solutions. So first off the bat, 2020 is looking strong. It's a very good news, albeit we'll say with a calmer quarter 1. After such a heated quarter 4, Q1 will be a lot calmer. We expect continued strong development as we saw in the European transit bus segment. Very positive development for medium duty supported by the new UPS contract. So that takes that business from being a start-up and a little bit dilutive to being accretive. Refuse and North American truck then will be relatively low for the quarter as we see things. On Purus, on e-mobility, let's touch again on the battery-electric vehicle truck demand. Agility, we're really at the forefront of offering products in this space through 2017 and into -- sorry, through 2018 and into '19. And in fact, at the trade shows -- most of the major trade shows in 2019, battery electric was definitely a lot of buzz there, for sure. And at the center of the buzz was Agility products and offerings. Anchor customer, DTNA, who have been very quick to the market, DTNA through customer Penske, obviously, a large logistics firm, have logged more than 10,000 miles with our products. And you can see from the quote on the bottom, been pretty impressed with our product. So although it's early days yet, we have hope and potential then for deliveries to 3 additional OEM programs in North America in 2020. So definitely an area to watch for Purus.And then back to the hydrogen product development pipeline. So as I say, over 50 projects, some of these are internal projects that we feel are important. But most of these -- almost 40 of these are customer-driven projects. In the light-duty space alone, we have 11 such projects going on; in the medium and heavy-duty space, 8; distribution, 5; and then the ground storage, mobile refueling, maritime and rail section, 12, including the recently announced collaboration project too in Geirangerfjord to ensure clean transportation also in the Norwegian fjord. So plenty of activity there in the pipeline. CNG Light-Duty Vehicles. So here, we have a temporary CNG LDV disruption that we see that will hit us fairly heavily in the first half of 2020. This is due to the fact that there's a productivity drive with Volkswagen, and they will be relocating the CNG assembly line to Wolfsburg, Germany. So unfortunately, what that means is a production stop, and we will be disrupted for a period of time in the first half of the year. We're already seeing the effects of this in quarter 1. The good news is that as soon as they're up and running again, we expect maybe back end of quarter 2, start of quarter 3, we expect sales to gradually ramp up to exceed the 2019 run rate, as I say, sometime in the second half of 2020. You'll recall that Volkswagen asked us to triple our volumes from 2018 levels. So that commitment will continue as soon as we get the assembly line up and running again. So that is definitely the impact that will hit us in quarter 1. Mobile Pipeline. I think the key here is our efforts in Q4, in particular all the way through '19, to diversify our revenue base. We have been taking note, keeping note of the onshore rig count activity in North America. That is a key indicator for us for certainly the oil and gas sector of our sales for Mobile Pipeline. So we see that, that has been coming down from a very high base. So we definitely see a risk of reduced or delayed orders from this sector. But again, the important thing is diversifying into other activities in which we can be happy with the growth of the renewable natural gas activities and utilities applications which have been a pretty strong in-market activity, and we've developed very well, as I say, through 2019. So RNG being very attractive, both in the U.S., we also see definitely U.K. and Sweden. So we will continue to pursue those opportunities. The other good thing is that that they help diversify our customer base because it is still quite strong customer concentration, as you know, in Mobile Pipeline in North America. So this is an area that we will be managing very closely and certainly want to continue to increase the RNG market. We've also haven't said so much about it, but we've had good opportunities in sales now in industrial gases. So we find our Mobile Pipelines also carrying helium across the U.S. for major our customers. Good revenue streams from services continue. We have done certain module buyback deals, and short-term rentals help to complement those deals. So we get good revenue stream from there. And of course, there's always requirements for testing, replacements and recertification of our products and others, which we will continue to service. So it will continue to be lumpy in Mobile Pipeline. On Ragasco, we expect a solid start to the year, probably on the levels of Q1 2019. We still see a soft European leisure demand. But again, we've done a lot of efforts to diversify our geographies. In Bangladesh, we continue to grow market share there. And we see Bangladesh contributing to our recurring revenues. We had sales in 2017, in 2019, we expect more sales in 2020. I think we had our first sale actually in 2016. So fairly recurring, and we need to celebrate all our victories with another couple of markets, new markets and that's to Oman and Jordan in the Middle East. So Ragasco continues to expand. So if I summarize, very short-term in Q1, we definitely see challenges due to this temporary stop, you can say, and disruption in CNG Light-Duty Vehicles. And also that our hydrogen levels will continue to be the same, probably at quarter 4 2019 numbers. Looking at the full year, I'd say, Agility is a standout, very strong revenue growth in 2020. And then looking further ahead, as Jon Erik commented, definitely, e-mobility and g-mobility drivers are stronger than ever. So Hexagon remains very well placed for driving energy transformation. On that, I will get Jon Erik to do a Q&A I think. Hiva, if you can help?

[Halvor Strand Nygård, Analyst]

Halvor Nygård from SEB. Could you maybe quantify the significant slowdown that you anticipate within the LDV segment for first half?

[David Bandele, Chief Financial Officer]

I wouldn't say quantify. But obviously, if you have a stop in production, it will be significant for that business unit.

[Halvor Strand Nygård, Analyst]

But you won't give any color on the numbers.

[David Bandele, Chief Financial Officer]

I think it's a bit too early already, and we're just seeing the effect in January and a little bit into February. I think if we come back at a later time, we'll be able to see the full effect. But what we predict is that it's a first half effect.

[Halvor Strand Nygård, Analyst]

On Purus, there is 1 hydrogen OEM contract now canceled and 1 delayed. Could you give us some more color on the background for those delays or cancellations? Is it the fuel cell technology? Or what's happening there? And also on the 50 projects that you're mentioning, the relative size of those in terms of order value compared to, call it, the lost contract that you now have?

[Jon Erik Engeset, President & CEO]

So -- yes, so that was, of course, a disappointment, the cancellation. So the customer decided to change the vehicle platform to -- as we understand it, a heavier vehicle. So I think that is, again, the confirmation that the hydrogen is shifting towards maybe larger passenger cars, but above all, medium-duty and heavy-duty and buses. And as such, it caused a cancellation of our relationship because they -- or not our relationship but our delivery to this specific contract. So it had nothing to do with Hexagon, but they had to choose an already developed cylinder in order to meet their time line. So I don't see this as changing the hydrogen landscape in any essential way. For us, it caused, of course, disappointment with our staff, who have worked very hard on this contract. At the same time, we have so many other things to do that these people will be very busy in other projects. And there is a lot out there that we will be competing for. And some of those opportunities are significant. What we have in our current portfolio are such smaller development projects. But after development, it comes to serial production. So a lot of growth opportunity. But if you're asking about the order backlog as such, those contracts are relatively small in size. So it means that we will continue addressing these development opportunities and prepare for the growth phase coming. And at the same time, we will, of course, be competing for the bigger opportunities that also will be in the market.

[Mikkel Nyholtt-Smedseng]

Mikkel Nyholtt-Smedseng, Carnegie. First off, you may have mentioned this, but could you possibly elaborate the currency effect on especially Agility but also the group year-over-year?

[David Bandele, Chief Financial Officer]

Yes, I think it has been net positive, around about 4%, 5% on the dollar. Euro is slightly different, but that's the main effect, you can say.

[Mikkel Nyholtt-Smedseng]

All right. And regarding the last hydrogen contract mentioned now and the already developed cylinder the party decided to go for, was that a Type 4 cylinder head-to-head competing with your solution? Or was there a completely different solution?

[Jon Erik Engeset, President & CEO]

It was a Type 4 cylinder. We don't know a lot of details around it. But what we understand is that the product had been developed. And in order to meet the short time line to start off production, the OEM selected them to use that particular cylinder instead of continuing the development project with us, which we believe would have led to a more optimized cylinder eventually, but it would have taken more time. And with the change of the vehicle platform, the OEM decided to go this route.

[Mikkel Nyholtt-Smedseng]

In Mobile Pipeline, I'm continuing to be frustrated about the results you report there. And I'm struggling to get my head around how to track them better because I understand it's a very lumpy business, but I probably may have misunderstood the spread in different products and margins on those if there is a certain mix effect because, time and again, you appear to deliver quite solid revenue figures, but margins tend to come in slightly below. Could you elaborate a bit on how the mix looked this quarter? And whether -- is it only cost related? Or is it product related? Or if there is something I may be missing or maybe the broader market may be missing there?

[David Bandele, Chief Financial Officer]

Sure. I mean there will be other mix impacts. There are some mix impacts, absolutely in Q4. You do have some buybacks. You have some rental income, and that can change the mix, without going into too much detail. But it's -- underlying, it's good profits after a certain level of scale, right? So I mean, that's what's happening. North America is still very concentrated. So it's still about 90 -- 85% of our sales. So obviously, we missed some of that geographic diversification. But it's basically a mix of everything. So there is some mix, there is some rental, there's sales, these typical things. But the key thing, as you said, it's always going to be lumpy. It's project-based, it's binary. So it's very hard, I'm sorry, to predict how the margin is going to come out in your models.

[Mikkel Nyholtt-Smedseng]

Last one for me on Ragasco. Opening up markets of Oman and Jordan sounds very good, but can we anticipate those markets to pay the same margin as you've had historically in the division? Or are we looking at a more permanent margin dilution? However, absolute figure is higher than before, of course.

[David Bandele, Chief Financial Officer]

First of all, we don't comment specifically on margins for customers, obviously. But I would say that if you are commenting on certain -- on Bangladesh, for example, I mean, that's a special situation. We are opening up a new market, a fairly large market at that, being quite aggressive with that, for good reasons. So here, we have a very good, strong recurring revenue base. Aside from that, no specific comment.

[Hiva Ghiri, Vice President of Investor Relations]

Any other questions?

[Jon Erik Engeset, President & CEO]

Any questions from the web audience, Hiva?

[Hiva Ghiri, Vice President of Investor Relations]

No.

[David Bandele, Chief Financial Officer]

No questions.

[Jon Erik Engeset, President & CEO]

All right. Thank you for sharing this morning with us, and have a good rest of day, everybody. Thank you.

[David Bandele, Chief Financial Officer]

Thank you.